auto loan information
Please help me understand this auto loan financing contract…?
I am about to sign a contract to take out a loan to purchase a car. I am reading the part of the financing contract that is the “Truth In Lending Disclosure” which gives the APR, Finance Charge (amount of interest), amount financed, and total of payments. After that is says “Prepayment Charge: If you pay off early, you will not have to pay a penalty; and will not be entitled to a refund of a part of the finance charge. See your contract documents for any additional information about nonpayment, default, any required prepayment in full before the scheduled date and prepayment penalties.”
Does that mean the moment I take out the loan I am automatically charged the full amount of interest? If I try to pay it off early, will I have to pay the full finance charge or will it be less since I am paying it off early?
No, you only pay interest that you use.
It just means you don’t get a refund on the finance charges you DID pay.
In other words, if you borrow $10k for 25 days, you should only pay interest for 25 days. You don’t get a refund for the interest on those 25 days but you DO NOT have to pay any additional interest because it hasn’t been earned yet.
Most places are simple interest nowadays.
So you can save a lot of the interest charges by paying it off early and it specifically says “If you pay off early, you will not have to pay a penalty’.
I havent had a car loan in over 20 years but I know, even back then, If I paid a payment 3 days early, I saved 3 days worth of interest at the end of the loan. You dont get to skip payments or anything but you can pay early and/or pay extra and save interest.
In other words if your balance is $5500 and your payment is $300 but you pay $500, your new balance is $5000 and you wont pay anymore interest on the extra $200 but it doesnt let you pay $200 less anytime in the future.
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